Full Judgment Text
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PETITIONER:
SMT. P. LEELAVATHAMMA
Vs.
RESPONDENT:
CONTROLLER OF ESTATE DUTY, ANDHRA PRADESH,HYDERABAD
DATE OF JUDGMENT15/02/1991
BENCH:
THOMMEN, T.K. (J)
BENCH:
THOMMEN, T.K. (J)
KASLIWAL, N.M. (J)
RAMASWAMY, K.
CITATION:
1991 SCR (1) 448 1991 SCC (2) 299
JT 1991 (1) 494 1991 SCALE (1)236
ACT:
Estate Duty Act, 1953-Sections 5, 74-Estate Duty-Levy
of Scheme-Duty being burden on estate on death, not debt or
encumbrance and not deductible-Maintenance of wife during
deceased’s life not debt or encumbrance and not deductible.
Words and Phrases-"Passes on the death"-Meaning.
HEADNOTE:
The High Court in a reference under the Estate Duty
Act, 1953 held that in computing the net principal value
of the estate for the purpose of the Act, the appellant
was not entitled to deduct either the estate duty
payable on the estate or the amount attributable to
the maintenance of the wife of the deceased. The
question was answered accordingly in favour of the
Revenue.
The appellant contended in the appeal by certificate
that estate duty being a first charge on the estate
passing on the death was an encumbrance and,
therefore, deductible and the amount of the
maintenance of the wife during her husband’s life was also
deductible.
The Respondent contended that estate duty being
payable only upon the estate passing on the death, it
was not a liability which was deductible. Deduction in
respect of the maintenance of the wife during the
life of her husband also was not permissible.
Dismissing the appeal, this Court,
HELD: 1. The levy is upon the principal value
of the property ascertained as provided under the
Act. Property changes hands at the time of the death,
by reason of the death, and, therefore, subsequent to
the death. The imposition of the charge under the Act
does not arise until the death has actually occurred
and the property has, thereupon, passed. [453E-G]
449
2. The liability to pay estate duty is fastened on
the persons accountable. But their liability is limited
to, and will not exceed, the assets of the deceased
actually received by them, or which, but for their
neglect or default, they might have received. Apart
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from the Personal liability cast on the persons
accountable, and their liability to penalty in the event of
default or concealment, the duty payable is charged On
the property itself and any private transfer or delivery
is void against any claim in respect of such duty.
Essentially and basically, therefore, the duty is a
burden on the estate and that burden is fastened on the
estate upon the death of the deceased. During his life,
no liability under the Act arose or could arise. [453G-
454A]
3. Subject to the limitations and exceptions statutorily
specified, the allowable deductions in the determination
of the chargeable value of the estate are the debts
and encumbrances incurred before the death of the
deceased. Estate duty falling upon property passing
upon the death had not become a debt or encumbrance
until the death of the deceased, and is, therefore, not
deductible. [454B-C]
4. As regards the claim for deduction of the amount
attributable to the maintenance of the wife of the deceased
during his life, there is no evidence or any finding to
show that the estate had been burdened with any such
debt or encumbrance by reason of the husband’s failure
to act upto his statutory obligation to maintain his wife.
[454E-F]
5. The expression "passes on the death" denotes change in
the title or possession of the whole property taking place
at the death. It is immaterial to whom the property passes.
[453D-E]
Inland Revenue Commissioner v. Crossman, [1937] AC 26;
Winans & Another v. Attorney General, [1910] AC 27, referred
to [1975] 99 ITR 221 (Karnataka); [1978] Ill ITR 365
(Gujarat); [1981] 127 ITR 642 (Allahabad); [1981] 132 ITR
871 (Madras); [1982] 137 ITR 801 (Gauhati); [1990]186 ITR 29
(Bombay); Controller of Estate Duty v. Estate of Late
Omprakash Bajaj, [1977] 110 ITR 263 (A.P.) approved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 822 of
1978.
From the Judgment and Order dated 23.3.1977 of
the Andhra Pradesh High Court in Case Referred (Estate
Duty Case) No. 6 of 1975.
450
T.A. Ramachandran and Ms. Janki Ramachandran for the
Appellant.
S.C. Manchanda, Ms. A. Subhashini (NP) and K.P.
Bhatnagar for the Respondent.
The Judgment of the Court was delivered by
THOMMEN, J. This appeal by certificate arises from the
judgment of the Andhra Pradesh High Court dated 23.3.1977 in
Estate Duty Case No. 6 of 1975. Answering the questions
referred to it against the appellant and in favour of the
Revenue, the High Court held that, in computing the net
principal value of the estate for the purpose of the Estate
Duty Act, 1953 ("the Act"), the appellant was not entitled
to deduct either the estate duty payable on the estate or
the amount attributable to the maintenance of the wife of
the deceased.
The appellant’s counsel, Mr. T.A. Ramachandran, submits
that the duty payable on the estate of the deceased is
an encumbrance on the estate, being a first charge on the
property passing on the death, and is, therefore,
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deductible in terms of Section 44 of the Act. According
to counsel, all properties passing on the death of the
deceased are encumbered to the extent of the duty payable
by reason of the charge created by section 74 of the Act
and that duty has to be deducted from the total value
of the estate which is subjected to the levy of duty in
terms of section 5. Counsel further submits that the
amount attributable to the maintenance of the wife during
the life of her husband must also be treated as a debt
deductible under section 44.
Mr. S.C. Manchanda, appearing for the Revenue, submits
that the claim of the appellant has no warrant in the law
and is totally unsupported by any judicial decision. He
submits that estate duty falls upon the property passing
upon the death. The property at the time of the passing was
not encumbered by the duty, for duty became payable only
upon its passing and was, therefore, not a liability to
which the estate was subjected during the life of the
deceased. It becomes so encumbered only subsequent to and
consequent on the death. He futher submits that there is
not the smallest foundation for the claim for deduction in
respect of the maintenance of the wife during the life of
the husband, as contended by the appellant’s counsel, for
the estate was never charged with the amount attributable to
the maintenance of the wife. A wife’s claim for
maintenance either during the life her-
451
husband, or subsequent to the death of her husband, is not a
charge on the property and is not a deductible amount in
terms of the Act.
We shall first deal with the claim for deduction of
estate duty. Section of the 5 of the Act, insofar as it is
material, reads:
"Levy of estate duty.
5(1). In the case of every person dying after the
commencement of this Act, there shall, save as
hereinafter expressly provided, be levied and paid
upon the principal value ascertained as hereinafter
provided of all peroperty, settled or not settled,
includng agricultral land........ which passes on
the death of such person, a duty called "estate
duty" at the rats fixed in accordance wth section
35.
(2)......................."
Sub-section (1) of section 5 imposes a duty upon the
net principal value ascertained of ’all property" which
passes on the death of a person. All properties passing on
a death, other than those which are exempted from duty (See
section 21 to 33), are, for the purpose of levy under the
Act, aggregated into one estate, which is the "property" on
which duty is levied at the rates applicable in respect of
its principal value (Section 34 and 35), but subject to the
deductions permitted under Part VI of the Act.
The properties are valued, for the purpose of levy
under the Act, in accordance with the provisions of Part V.
Section 36 says that the principal value of any property
shall be estimated to be price which, in the opinion of the
Controller, such property would fetch if sold in the open
market at the time of the death of the deceased.
Part VI of the Act contains section 44 to 50B dealing
with deductions in determining the chargeable value of the
estate. Section 44 says that, in determining the value of
an estate, allowance has to be made for funeral expenses not
exceeding rupees one thousand and for debts and
incumbrances. The section, however, provides that no
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allowance shall be made in respect of matters enumerated
under clauses (a) to (d) of the section.
The "debts and encumbrances" mentioned in section 44
are, as a-
452
general rule, debts and encumbrances incurred before the
death of the deceased. Certain exceptions are,
specifically provided in section 44 and the other provisions
of Part VI. Reasonable funeral expenses, cost of realising
or administering foreign property, allowance for duty paid
in a non-reciprocating country, relief from estate duty
where court fees have been paid in any State for obtaining
probate, letters of administration or a succession
certificate, and, relief from estate duty where tax has been
paid on capital gains are, in the specified curcumstances,
allowable deductions in the determination of the value of
the estate for the purpose of estate duty, notwithstanding
that such liabilities arose subsequent to the death. In no
other case does the Act postulate deduction or allowance for
any debt or encumbrance incurred subsequent to the passing
of the property upon the death. Singinficantly, estate duty
payable on the estate of the deceased is not one of those
exceptions to the general rule.
Section 53 makes certain persons accountable for the
whole of the estate duty on the property passing on the
death. These are the legal representatives, trustees,
guardians, committees or other persons in whom any interest
in the property or the management thereof at the any time
vested. They are accountable for the whole of the estate
duty on the property passing on the death of the deceased,
but their liability is limited to the assest of the deceased
which they have actually received or which, but for their
own neglect or default, they might have received. Any
default or concealment on their part in the discharge of
their duties will make them liable for the penalty provided
under section 60.
Section 74 says that duty payable in respect of
property, passing on the death of the deceased, is a first
charge on the property so passing. Any claim in respect of
such duty is not liable to be defeated by any private
transfer or delivery of such property. Any such private
transfer or delivery is void against such a claim. Section
74 reads:
"Estate duty a first charge on property liable
thereto.
74(1). Subject to the provisions of section 19,
the estate duty payable in respect of property,
movable or immovable, passing on the death of the
deceased, shall be a first charge on the immovable
property so passing (including agricultural land)
in whomsoever it may vest on his death after the
debts and incumbrances allowable under Part VI-
453
of this Act; and any private transfer or delivery
of such property shall void against any claim in
respect of such estate duty.
(2) A rateable part of the estate duty on an
estate, in proportion to the value of any
beneficial interest in possession in movable
property which passes to any person (other than the
legal representative of the deceased) on the death
of the deceased shall be a first charge on such
interest:
Provided that the property shall not be so
chargeable as against a bona fide purchasr thereof
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for valuable consideration without notice.
3........................"
The sechme of the Act, as the above provisions
indicate, is to levy estate duty upon the net principal
value of all property,as aggregated and ascertained under
the Act, and which passes on the death of the person who was
competent to dispose of such property at the time of his
death (section 6) or which is deemed to pass on his death
(section 7 to 17). The expression "passes on the death"
denotes change in the title or possession of the whole
property taking place at the death. It is immaterial to
whom the property passes. "The question....is not to whom
has the property passed, the question is whether it has
passed at all". Per Lord Blanesburgh, Inland revenue
Commissioners v.Crossman,[1937] AC 26, ’Estate duty falls
upon the property passing upon a death..." Per Lord
Loreburn, L.C., Winans & Another v. Attorney General, [1910]
AC 27,30. the levy is upon the principal value of such
property ascertained as provided under the Act. Property
changes hands at the time of the death, by reason of the
death, and, therefore, subsequent of the death. The
imposition of the charge under the Act does not arise until
the death has actually occurred and the property has,
thereupon, passed.
The liability to pay estate duty is fastened on the
persons accountable. But their liability is limited to, and
will not exceed, the assets of the deceased actually
received by them, or which, but for their neglect or
default, they might have received. Apart from the personal
liability cast on the persons accountable, and their
liability to penalty in the event of default or cocealment,
the duty payable is charged on the property itself and any
private transfer or delivery is void against any claim in
respect of such duty. Essentially and basi-
454
cally, therefore, the duty is a burden on the estate and
that burden is fastened on the estate upon the death of the
deceased. During his life, no liability under the Act arose
or could arise.
Subject to the limitations and exceptions statutorily
specified, the allowable deductions in the determination of
the changeable value of the estate are the debts and
encumbrances incurred before the death of the deceased.
Esate duty falling upon property passing upon the death had
not become a debt or encumbrance utill the death of the
deceased, and is, therefore, not deductible.
The view is consistent with the conclusion reached on
the point by various High Courts,[1975] 99 ITR 221
(Karnataka), [1978] 111 ITR 365 ( Gujarat), [1981] 127 ITR
642 (Allahabad), [1981] 132 ITR 871 (Madras), [1982] 137 ITR
801 (Gauhati), [1990] 186 ITR 29 (Bombay). This conclusion
was adopted by the Andhra Pradesh High Court in Controller
of Estate Duty v. Estate of Late Omprakash Bajaj, [1977] 110
ITR 263 and it was that decision which was followed by the
High Court on this point in the judgment under appeal. The
High Court, in our view, rightly disallowed the claim for
deduction of the estate duty in the computation of the net
principal value of the estate.
As regards the claim for deduction of the amount
attributable to the maintenance of the wife of the deceased
during his life, there is no evidence or any finding to show
that the estate had been burdened with any such debt or
encumbrance by reason of the husband’s failure to act upto
his statutory obligation to maintain his wife (see Section
18(1) of the Hindu Adoptions and Maintenance Act, 1956).
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The wife is of course a sharer of the assets left behind by
her husband (see Section 8 of the Hindu Succession Act,
1956). This claim was also, in our view, rightly disallowed
by the High Court. In the curcumstance, for the reasons we
have stated, the appeal is dismissed. Howerver, we do not
make any order as to costs.
V.R.R. Appeal dismissed.
455